Here’s a riddle with the answer provided. Why would M2 Money supply in the US be growing at year-over-year rate of nearly 25% while the velocity of money — the speed at which money moves through the real economy — is falling by 20%? Answer: because monetary policy leads to asset price inflation while the real economy is paralysed by fear, deflation, and the ham-fisted response of federal, state, and local governments to a virus which 99% of survive from.
Greetings from Cheyenne, the capital of the US state of Wyoming. I’ve hit the road north of lockdown Colorado to explore some opportunities in Wyoming. Wyoming and Colorado have a lot in common. Both are shaped like squares. Both have the Rocky Mountains running up through them. And both are where the Great Plains meat the Continental Divide.
But Wyoming is less densely populated than Colorado. The skiing is just as good, but further west with fewer accessible resorts within a couple of hours of an international airport (Aspen and Vail are easy to get to from Denver). Wyoming is windier. And it’s definitely more ‘Cowboy’.
I’ll get back to the cultural differences. And why I think more people in Australia and the US will be hitting the road too, in the coming years. But let’s get back to markets and the growth in money supply and booming stock prices. What’s going on?
It’s become glaringly obvious that monetary policy — QE, curve control, the manipulation of interest rates — has triggered a once-in-a-lifetime book in risk assets, especially growth, momentum, and tech stocks. The Nasdaq Composite is up almost 40% year-to-date, and that’s even after the market swan dive in March.
Telsa is up more than 600%. Its market cap dominates global auto makers, even though Tesla’s sales and total production numbers are a small fraction of the industry. Its inclusion in the S&P 500 triggers automatic buying of index trackers. Liquidity makes everything go higher.
The big bitcoin rally
The same appears to be true of bitcoin, whose supporters have entered a new age of triumphalism. Don’t get me wrong, I’ve got nothing against it. In The Bonner-Denning Letter, we recommend a small allocation to cryptocurrencies. We believe the monetary world is changing too. But we prefer the safety of gold to the volatility of a new digital asset whose track record as a store of value is less than 13 years old.
Still, it’s understandable why so many people have the fear of missing out. Bitcoin is up ‘only’ around 160% year-to-date. But on 8 September, it was trading at just $10,030. By 1 December, it had hit $19,928. That’s crazy.
Some people like crazy though. Where else can you find that kind of price action that promises life-changing financial gains, even with massive price risk? It used to be the only place you can find that kind of price action was in penny stocks or junior mining stocks. And even then, that had to be during a gold and silver boom.
Gold and silver, by comparison are underperforming the big bitcoin rally. Which brings me back to the triumphalist. Bitcoin is a better version of gold, they say. It has all the qualities of scarcity with none of the costs of storage or the risks of confiscation. Gold, as some of them have said on Twitter, is an analog ‘shitcoin’ compared to bitcoin.
We’ll see about that over time. But they may be on to something with an idea whose time has come. Nothing is more powerful, as Victor Hugo once wrote. And compared to the alternative — fiat money issued by central banks that represent deeply indebted governments — it’s not hard to see why so many people are headed for the exits on fiat money (stocks, bitcoin, gold, real estate).
Any port in a storm, right? The storm is here. And the exodus is on. The price action in the stock market is not just a bubble in valuations (although it is also definitely that). It’s a full-on flight of capital out of cash. Yet it comes with massive price risk (another crash). Which brings me back to Wyoming.
A haven for blockchain-based businesses…
Wyoming is being described as the ‘Delaware of digital assert law’. That’s not exactly a catchy slogan. And if you didn’t know Delaware has laws designed to make it easy to incorporate there, then it would mean nothing to you. So what does it mean?
Wyoming has enacted a series of laws designed to make it easier to own, purchase, and trade digital assets for all kinds of financial players (individuals and insurance companies and asset managers). Banks can be qualified custodians for digital assets in Wyoming. The state recognises digital property rights for individual owners.
The favourable tax treatment of cryptocurrencies by the state — they’re exempted from property taxes — is designed to do what any good tax laws are designed to: attract capital and business to the state. It’s a bold move from a state that used to be heavily dependent on oil, gas, and coal revenues. With conventional fossil fuel industries under attack from federal regulators (and increasingly from ESG and activist funds arguing for ‘divestment’), Wyoming’s legislature is aiming to make the state a haven for blockchain-based businesses.
I’ll be looking more into that the rest of my time here. But the spirt of the law matches the independent, live-and-let-live spirit of the state. Wyoming is one of the few western states in the US that hasn’t been infected by progressive tax refugees from California. These refugees flee high-tax and high regulation cities and counties in California — but often bring the same nanny state, boot-licking frame of mind with them.
It’s a culture shock. You can still dine inside a restaurant in Wyoming. Some of the bars are open until 2am. And they even serve beer and alcohol. Mask wearing isn’t compulsory, and not especially prevalent or noticeable. It’s like…a different country.
Will it last? COVID cases are soaring in the US. Even though it’s now clear that ‘cases’ are not the same as active infections, the numbers are being used to whip up fear and hysteria. A full-on federal smack down of the states may be coming. Can Wyoming resist? Stay tuned.
Editor, The Rum Rebellion
PS: Cheyenne is only about two hour drive north from where I’m staying in Colorado. We weren’t stopped at the border and we didn’t have to show anyone papers. There were no cops outside the state buildings. No statues have been toppled…yet.